Research I’d like to see… China and Total Factor Productivity in Agriculture

I had a thought as I was getting in the shower last night. [1] China’s economy is completely unrecognisable to 34 years ago when its reforms began.

Its reforms began in a village in some interior province which was allowed to split up its collective farms and allow households to become mini-capitalists in a mini-market system.

Following this reform output increased quite significantly. Post hoc ergo propter hoc, the reform caused the increase in production…

Well of course I don’t actually like to rely on logical fallacies, and I also know that this increase in production also immediately followed on from an extended period of investment in fertilisers and new farming technologies.

I want an answer, and I think the best way of doing so would be to look at Total Factor Productivity from the early 1950s to the late 1980s to compare the two systems. Allow me to quote at length on TFP to illustrate why I want to look at it this way:

We all do a primitive form of growth accounting every time we talk about labor productivity; in so doing we are implicitly distinguishing between the part of overall national growth due to the growth in the supply of labor and the part due to an increase in the value of goods produced by the average worker. Increases in labor productivity, however, are not always caused by the increased efficiency of workers. Labor is only one of a number of inputs; workers may produce more, not because they are better managed or have more technological knowledge, but simply because they have better machinery. A man with a bulldozer can dig a ditch faster than one with only a shovel, but he is not more efficient; he just has more capital to work with. The aim of growth accounting is to produce an index that combines all measurable inputs and to measure the rate of growth of national income relative to that index–to estimate what is known as “total factor productivity.”

So far this may seem like a purely academic exercise. As soon as one starts to think in terms of growth accounting, however, one arrives at a crucial insight about the process of economic growth: sustained growth in a nation’s per capita income can only occur if there is a rise in output per unit of input.

Mere increases in inputs, without an increase in the efficiency with which those inputs are used–investing in more machinery and infrastructure–must run into diminishing returns; input-driven growth is inevitably limited.

How, then, have today’s advanced nations been able to achieve sustained growth in per capita income over the past 150 years? The answer is that technological advances have lead to a continual increase in total factor productivity–a continual rise in national income for each unit of input. In a famous estimate, MIT Professor Robert Solow concluded that technological progress has accounted for 80 percent of the long-term rise in U.S. per capita income, with increased investment in capital explaining only the remaining 20 percent.

Paul Krugman described the Soviet Union, in a fascinating paper on the East Asian Miracle,  and found that Total Factor Productivity hadn’t increased at all throughout the USSR’s days. As Paul Krugman says “productivity isn’t everything, but in the long run it’s pretty much everything.”

I’ll admit that things aren’t looking good for Maoist China in this face off, but this is something that comes up a great deal in discussions of pre- versus post- reform China – and I want answers, not most likely conjectures.

Anyone know of any resource on this?

Or where I would find the necessary data sets that I can use once I start my Masters in October?

[1] Really, this is what I think about when I get in the shower, perhaps I need one of those things… wassitcalled… a life!


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